March 2016 Update: Temptation to Put Savings Against Debt

Recap & our numbers

It’s the first Saturday of a new month – time for an update. To recap the whole story, DH and I have been on a journey out of debt since June of 2012 when our total debts added up to $257,000:

$21,000 in consumer debt

$81,000 debt for DH’s home business

$155,000 for our mortgage

We’d paid off the last of our consumer debt by the end of 2012. We paid off the last of our business debt in June of 2015. Following the steps outlined in Dave Ramsey’s The Total Money Makeover, we started a two-pronged approach once we were debt-free except for the mortgage:

We increased our savings, with an initial goal of building up a big emergency fund to see us through 3-6 months of loss of income.

We started to pay down the mortgage as aggressively as possible.

Our mortgage now sits at $112,308.

Our emergency fund is 91% full. (DH does not want me to share dollar amounts when it comes to our assets.)

What if . . . ?

The next big milestone we’ll reach in our debt-reduction is to break the six-figure barrier. It will be a sweet moment when we go below $100,000. And here’s the temptation: we could do it now – by putting most of our emergency fund savings against the mortgage.

My history with savings

Saving has always been a challenge for me. In my discretionary account, I have set several savings goals for myself, but I have not achieved one of them. If I have any amount of money in my pocket, my purse, or my bank account, my compulsion is to spend it – despite the best of intentions. It has been this way since I was a teenager who spent all of her allowance – well before month’s end. “There’s a hole in your pocket,” a friend told me when I was a university student. “Money won’t stay in it.”

The big step forward I’ve made in terms of savings has been that since June of 2012, DH and I have not once used debt to pay for anything. Whether it was a new roof, a big vet bill, or home renovations, we have saved up for each big expense and paid for it outright. That is not something we EVER did before we started tackling our debts. But even now that I’m on track in many ways, when there is no specific goal – when I’m saving just to save “because it’s a good thing to do,” I don’t follow through.

Good thing I’ve had a pension plan to invest in all of these years! I’m going to have a decent retirement income – not because of my own wisdom, but because of dumb luck. I had absolutely no appreciation for the Teachers’ Pension Plan when I started out in my career, financial head deeply stuck in the sand. It did not motivate my job choice. Nevertheless, with no say in the matter, I’ve been investing in it steadily all these years, and it will serve us well.

Why we’re following through with savings now

We’ve made great progress in our plan to save up an emergency fund for 2 reasons. And now we’ve got a third reason too:

The concept of “emergency” isn’t vague for us. We know what “loss of income” is like. For six years, DH was underemployed/unemployed after the high-tech bust a decade and a half ago. He’s been running a successful home business for six years now, but there are no guarantees. Injury, illness, a shift in the industry . . . It’s not inconceivable that he might suffer a second “loss of income.” We really are motivated to have a 6-months buffer in case that happens.

We have some big ticket item expenses on the horizon. Our van is 17 years old – and it looks it. We have enormous respect for that ’99 Dodge Caravan, and we’ll drive it until it breathes its last. Hopefully, it’s got another 17 years to go, but more likely, it will give out any day now. We plan not go into debt to replace it when that time comes, so even when our emergency fund is at 100%, we’ll have a motivation to keep on saving. Our furnace and A/C are turning 18 years old this year. They’ll need to be replaced soon too.

Our house was built in 1998, and most of the houses on our street as well as an adjacent street were built within a year or two before or after it. The builder offered the option of a stucco finish on the outside, and we, like many others, chose it. About 5 years ago, some home owners started to notice a growing mould on the stucco finish. Apparently, the builder took the quick-and-easy route when it came to preparing for it, and the mould is a result. As far as I know, two owners have refinished their stucco. I know that one of them paid about $60,000 for it – and that was for a house that is smaller than ours. Ugh! Someone has sent around a flyer stirring up the idea of a lawsuit against the builder. Who knows what we’re in for? Whatever it is, we want to be ready for it.

Blessing in disguise?

Sometimes, we’re able to recognize a blessing in disguise, and I’m seeing one here. Our impending but not-yet-urgent needs to replace vehicle, furnace, A/C, and possibly stucco finish (YIKES!) are keeping us on our toes. And I in particular am in need of this kind of motivation to follow through on that very basic of financial fitness practices: saving.

Do you find it challenge to follow through with savings? What makes you more likely to follow through? Your comments are welcome.

Thanks for reading our report for March ’16! Please check out my weekly posts at Fruclassity.

prudencedebtfree

After draining our saving (e-fund) after my job loss it has been slow to ramp it back up. Seems like there is always something popping up that we need to cash flow. I like the word cash flow much better than credit card. Having lived now with no saving and a fully saved emergency fund we know there is an incredible difference in stress levels, attitude, mind set etc. Having the cash cushion gives us such peace of mind for the unexpected. It’s motivation to keep us going to get our saving back to where it needs to be.

I was so glad that you had your (huge) e-fund when I learned the news of your job loss. I’m sure that a part of you was screaming “Noooo! Don’t diminish the e-fund!” – but of course, that’s what it’s for. I wish you very well in building it back up again, despite the “cash flow” demands that do pop up when you’re raising a family. (And you’re right, Brian. “Cash flow” is WAY better than “credit” : )

$60,000! I about fell off my chair! Sheesh, I think I’d look into seeing if vinyl siding might be way cheaper. Not that I don’t like stucco. I love it! Just not $60,000 love it. Sheesh again! Other than that, which I’m having trouble getting past for some reason, great insights, as usual! I love following your blogs. It’s like a financial sporting event. I am rooting for you! 🙂

“a financial sporting event” – ha! Vinyl siding with brick at the front is done on some houses around here, but I’m not sure that it’s any cheaper – due to the brick. We should look into alternatives as you say though. It’s not an immediate thing, but a few years down the road, we might have to make a big decision about it. We should know our options. Thanks, Kay : )

Unfortunately it IS inevitable that things will happen that need to be replaced or major fixes that are expensive. I don’t know many people who can get out of that one alive. The biggest help I have found is automating savings, which has been WAY easier to do with a higher income and steady income too! If I don’t see it, I’m way less likely to spend!

Thanks, Tonya. There’s something to be said for “not seeing it”. We put a regular amount away each month, and although it isn’t automated (in case DH has a really slow business month – which happens on occasion), it is becoming a no-brainer. I’m hoping that we’ll be among those who will “get out of it alive” if a major fix comes our way : )

We’ve been very tempted with this lately! We could knock out our mortgage right now if we took our emergency fund down to 3 months’ expenses (without a mortgage). But we are going to play it safe and take another 2 months so we can keep the account at 6 months’ expenses. We are going to throw a good chunk of it at the mortgage, though, since our expenses will be lower without that bill. We will refund our car savings after reaching that goal, since both our cars aren’t new and have had some trouble in the past year.

Are you THAT close to paying off your mortgage? And you are in your early 30s, right? VERY impressive, Kalie! It must be hard, when you’re so close, not to just throw all of your savings at it now and be done with it. But you are doing the right thing by waiting . . . I’ve definitely learned the benefits of patience through all of this. Well done!

Those are some pretty steep expenses you have coming up, but luckily you have already built your savings muscle. I know we will probably need to do a new roof in the future and our windows are definitely drafty and in need of replacing. I haven’t came up with a savings plan for it yet because we’ve been trying to keep our car maintenance fund stable. Every time we get it to its minimum, an expense pops up:(

Our saving muscle needs more build up : ) There is definitely an element of luck involved. Your experience of having an expense pop up every time you reach a minimum for your car fund is tough psychologically. I really hope that next time you reach it, you’ll surpass it – with no car mishaps.

Saving can be a challenge for most people. Between fulfilling our wants (consumer goods and services) and needs (true emergencies) it can be tough. I have been pretty good with maintaining a fair balance in my savings account over the last few years. However, after surveying the economic landscape and speaking with a friend who maintains $100,000 in cash, my new goal is to reach that number. In a world of uncertainty, particularly as I close in on retirement, cash is king. It reduces stress and ensures that the first year or two of retirement won’t be negatively impacted even if retirement accounts suffer in a lousy market.

“Cash is king.” Hmmm…. Good food for thought there. The markets are pretty scary, but the investors for my pension fund managed to get 13% ROI for 2015. I’m happy to leave investments in the hands of experts – and we’ll just keep on saving up that emergency fund. All the best in reaching that goal of $100,000 in cash. Definitely a nice buffer against lousy markets.

I think you’re doing the right thing by continuing to increase that savings buffer, Ruth. With all of those expenses looming, you’ll feel better knowing that when the time comes, you’ll have the cash to pay for it. The mortgage will get down there. God will work it out well with your cooperation. 🙂

The old challenge of patience crops up again and again with me. Even DH is tempted to use our savings to bring that mortgage down. Those looming expenses serve to keep us on track. We will cooperate : )